When any commercial organization reaches the end of its accounting period, the organization must “close its books.” This process is referred to as a financial close. In performing a financial close, an organization must close and reconcile its financial records for a particular accounting period, create various financial statements, and report the financial statements and related data to various parties. For example, a public company is required to report financial statements to the U.S. Securities and Exchange Commission (SEC), the upper management of the company, and to their investors, while a private company is required to report financial statements to their state of incorporation and to their upper management.
At a minimum, a commercial organization must perform a financial close annually, because the commercial organization needs to file an income tax return every year. Some organizations may also choose to perform a financial close more often, such as quarterly, monthly, or even daily, although the latter is not common.
When performing a financial close, it is necessary to ensure all financial data is accurately recorded in the organization's general ledger. However, such data may reside in a variety of different systems in a variety of different locations. The data may also be stored electronically in various formats or may be manually recorded. As a result, performing a financial close typically involves hundreds of activities and collaboration across multiple business units and large geographical regions and different time zones.
The large number of financial documents, reports, and schedules (both audited and unaudited) involved in a financial close undergo many revisions and stages of approval before being finalized. Such financial documents, reports, and schedules are subject to numerous requirements, such as SEC rulings, Sarbanes/Oxley Compliance, and audit requirements. Consequently, it is important for such documents, reports, and schedules to be accurate and complete.
Currently, the performance of a typical financial close is coordinated through numerous emails, phone calls, spreadsheets, and documents. As a result, the financial close process is error-prone, tedious, and time-consuming. However, despite these hardships, earnings report must go out by certain date, as there are penalties for missing a deadline.